The streaming company once known as “Debtflix” is back to significant borrowing. Netflix Inc. now plans to add tens of billions of dollars of debt. Specifically, the company aims to finance its planned $72 billion acquisition of most of Warner Bros. Discovery Inc. The deal will elevate the total Netflix Warner Bros Debt load to approximately $75 billion.
However, this debt accumulation occurs at a crucial time. The company boasts a much stronger balance sheet today than before the pandemic. This financial strength positions Netflix to potentially increase its price in any bidding war. Experts believe the company can likely maintain its desirable investment-grade rating despite the massive borrowing.
The Return of “Debtflix”: Financing the $72 Billion Deal
Netflix’s agreed acquisition currently involves $59 billion in temporary debt financing from major Wall Street banks. Subsequently, the entertainment giant plans to replace this temporary loan with long-term debt instruments. This refinancing structure includes up to $25 billion in bonds, $20 billion in delayed-draw term loans, and a $5 billion revolving credit facility. Netflix also plans to use its strong cash flow to pay down a portion of the debt.
The move marks a departure from its recent debt-free operating model. Yet, as Stephen Flynn, an analyst at Bloomberg Intelligence, pointed out, “Netflix’s credit profile really turned around.” He emphasized the company has “come a long way from high yield.” This current borrowing spree signals executive confidence in the long-term value of the acquisition.
Historical Precedent and Financial Strength
Netflix first sold junk bonds in 2009. Throughout the following years, the company piled up liabilities. Its debt load climbed to $18.5 billion as it built its content library and produced hits like Stranger Things. The financial risk earned it the moniker “Debtflix.” But then, the investments proved prescient. The 2020 pandemic accelerated streaming adoption worldwide. Consequently, vast amounts of cash flowed into Netflix’s coffers. By 2023, the company generated over $6.9 billion in annual free cash flow. This success earned Netflix the investment-grade status it seeks to protect today.
Jim Fitzpatrick, head of US investment-grade credit research at Allspring Global, asserted, “Netflix has earned the right to take on an acquisition of this size.” He confirmed the balance sheet “has plenty of capacity to accommodate something like this.”
Credit Risk and Analyst Warnings on Netflix Warner Bros Debt
The substantial increase in debt naturally raises concerns among investors. According to Bloomberg Intelligence calculations, the company’s total debt would rise from about $15 billion to $75 billion if the acquisition closes on the latest terms.
Rating Agency Perspectives
Netflix currently holds an investment-grade rating: A from S&P Global Ratings and A3 from Moody’s Ratings.
- Morgan Stanley’s Warning: A team of Morgan Stanley analysts, led by David Hamburger, views the rising Netflix Warner Bros Debt levels as a risk. They argue the streaming company is vulnerable to a credit cut to the BBB tier. Therefore, they recommend selling the company’s notes due in 2034 and 2054, anticipating significant new debt issuance and a potential downgrade.
- Moody’s Affirmation: However, Moody’s affirmed Netflix’s A3 rating. They cited the company’s strong operating performance and the strategic benefits derived from acquiring “some of the most highly regarded intellectual property in the media industry,” including Harry Potter, HBO, and DC Comics. The agency adjusted its outlook from “positive” to “stable.” This reflects a slight, but manageable, increase in risk from the massive transaction.
The Hostile Rival Bid and Antitrust Hurdles
The debt situation might swell even further. Paramount Skydance Corp. launched a hostile takeover bid for all of Warner Bros. Discovery Inc. Specifically, this all-cash offer values the entire company at more than $108 billion, including debt. This represents a value approximately $26 billion higher than Netflix’s initial $72 billion offer for only a majority stake. This aggressive counter-offer could force Netflix to increase its bid and, consequently, its debt load.
The Paramount Skydance Challenge
Executing the deal is complex. Furthermore, the transaction—whichever company wins—faces potential antitrust concerns. Lawmakers and unions have voiced strong opposition. They argue the combination of Netflix and Warner Bros.’ assets, including HBO Max, could push the combined entity above a 30% market share threshold. In fact, a class-action lawsuit has already been filed. It alleges the deal poses “irreparable antitrust injury” to consumers by reducing competition and potentially increasing prices. If regulators move to block Netflix’s transaction, the company faces another substantial risk. It must pay a $5.8 billion penalty in the form of a breakup fee without realizing any revenue benefits.
The De-Leveraging Strategy: Managing the Netflix Warner Bros Debt Load
Many investors and analysts ultimately view the risks as manageable. They trust Netflix’s ability to de-lever quickly.
Bloomberg Intelligence projects that the new combined company will generate approximately $20.4 billion in earnings available to pay interest (EBITDA) next year. At this level, net debt would equal about 3.7 times EBITDA. Crucially, BI forecasts strong earnings growth in 2027. This growth would bring the leverage ratio down to the mid-2x range. This ratio is more typical for a stable investment-grade company.
“Overall, Netflix is a very, very strong credit,” BI’s Flynn concluded. “They’ve got growing revenue, growing Ebitda, and growing free cash flow, so the pro-forma company can de-lever quite quickly.” This strategy underscores the difference between the old “Debtflix” and the financially powerful streaming titan of today.
